Turner & Anor v Universal Home Loans Pty Ltd & Ors

16 The principles upon which a Mareva or asset preservation order will be made are well known and need not be expounded at length. They are encapsulated in decisions such as Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319; Jackson v Sterling Industries Ltd (1987) 162 CLR 612; Cardile v LED Builders Pty Ltd (1999) 198 CLR 380. So far as is relevant for present purposes, the principles may be summarised as follows. 17 A plaintiff seeking to obtain a Mareva or asset preservation order must first establish a prima facie cause of action against the defendant. In the present case, there has been no serious debate as to whether or not the Plaintiffs have satisfied that requirement. I take it that the Defendants accept that the Plaintiffs' Statement of Claim raises at the least a serious question to be tried. 18 Second, a plaintiff must establish that there is a danger that he will not be able to recover the fruits of a judgment against the defendant by reason of the defendant absconding, removing assets from the jurisdiction, or otherwise disposing of or dealing with assets in some way such as to defeat the judgment. 19 In considering whether a plaintiff has established such a danger the Court bears in mind that a Mareva or asset preservation order is not made for the purpose of better securing to the plaintiff payment of a judgment debt; such an order is made to prevent an abuse or frustration of the process of the Court by the defendant. To make an order preventing a person dealing with his assets when no claim against him has yet been proved is no light matter and the Court proceeds with caution. 20 While is not appropriate to apply a special standard of proof to a plaintiff's application for a Mareva or asset preservation order, the plaintiff must show that the danger of dissipation of assets is sufficiently substantial to warrant the granting of the injunction. While it is not an essential ingredient of such an application, a prima facie case that the defendant has been dishonest in dealing with the subject matter of the plaintiff's claim will often give rise to a strong inference that the defendant will not, unless restrained, preserve the subject matter of the claim for the benefit of the plaintiff should he be successful in the action. Facts

21 I turn now to the relevant facts. 22 Mr McNabb says that in 1999, before he commenced business in association with the Plaintiffs, he received advice from his solicitor. Part of that advice was the suggestion that the McNabb's family home should be transferred to his wife alone to protect it from possible future claims by creditors of the businesses in which Mr McNabb was to engage. Mr McNabb agreed but took no action at that time. 23 In June 2001, Mr Turner commenced the Local Court against Mr McNabb. In February 2002, MES commenced the District Court proceedings against Universal and Mr McNabb. 24 In July 2002, Mr and Mrs McNabb purchased in their joint names the property known as 822 Turnbull Drive, East Maitland. The property was sold at a profit in April 2003 and the profits were used to pay Mr and Mrs McNabb's tax liabilities and other expenses. 25 In August 2002, Mr and Mrs McNabb purchased in their joint names two parcels of land in the East Maitland area, identified for convenience as Lots 917 and 918. Lot 918 was sold in December 2002 and the proceeds applied in reduction of the liabilities in respect of Lot 917. Lot 917 was sold on 21 May 2003. 26 There is no evidence that Mr McNabb ever sought to transfer his interests in the three properties jointly owned with his wife to a related party or for less than their market value. 27 Towards the end of 2002, Mr McNabb's solicitor again advised him that he should transfer his interest in the family home to his wife in order to protect it against claims by potential creditors. Mr McNabb effected the transfer on 5 November 2002. 28 On 25 February 2003, judgment was entered in the Local Court proceedings against Mr McNabb in favour of Mr Turner in the sum of $43,023.87. That sum was paid in full by Mr McNabb on 8 August 2003. 29 By terms of settlement dated 24 February 2004, judgment was entered in the District Court proceedings in favour of Mr McNabb. By terms of settlement dated 2 March 2004, Universal agreed to pay MES the sum of $75,000 in settlement of MES's claim against it for $155,000. Universal paid the sum of $75,000 to MES on 30 March 2004. 30 The resolution of the Local Court proceedings and the District Court proceedings reduces the claim by the Plaintiffs in the present proceedings from $300,000 to $147,000. 31 Draft financial statements prepared by Universal's accountant for the year ended 30 June 2004 show that both in the 2003 and the 2004 financial years Universal carried on a substantial business and derived a substantial profit from its trading activities. The gross profit for the 2003 financial year was almost $554,000; the gross profit for the 2004 financial year was almost $662,000. As at 30 June 2004 the net assets of Universal were $264,288. 32 Mr Sullivan QC, who appears with Mr S. Jacobs for the Plaintiffs, says that Universal's financial accounts should be given no weight because they were "special purpose" accounts prepared for the use of the directors on the basis of information provided by the directors. The Plaintiffs' expert accountant has reviewed the accounts but there is no evidence that the accounts in fact seriously misstate or do not fairly state Universal's position. 33 There is no evidence whatsoever that either before or after the inception of legal proceedings against it by the Plaintiffs, Universal has engaged in any transaction for the purpose, or which has the effect, of placing any of its assets beyond the reach of a judgment in favour of MES. 34 There is no evidence whatsoever that either before or after the inception of legal proceedings by the Plaintiffs, Mrs McNabb has engaged in any transaction for the purpose of placing her assets beyond the reach of the Plaintiffs. Mrs McNabb is not a defendant in any proceedings instituted by the Plaintiffs, other than the present proceedings in which an order is sought setting aside the transfer of Mr McNabb's interest in the family home. The parties' submissions

35 Mr Sullivan QC submits that the Court should find that the transfer of Mr McNabb's interest in the family home to Mrs McNabb in November 2002 was dishonestly done in order to defeat the claims which the Plaintiffs had instituted against Mr McNabb and Universal in June 2001 and February 2002. He submits that because Mr McNabb was dishonest in so dealing with his interest in the family home there is a real danger that he will be equally dishonest, unless restrained, in dealing not only with his own assets but the assets of Universal, which are under his control as director. 36 I do not think that Mr Sullivan went so far as to suggest that there was evidence that Mr McNabb would be able to procure Mrs McNabb to act dishonestly in disposing of the share in the family home transferred to her by Mr McNabb. 37 Mr Drummond, who appears for the Defendants, submits that the disposition of Mr McNab's interest in the family home to Mrs McNab was entirely honest and was done for the purpose of protecting the family home, not from the specific claims of the Plaintiffs, but from the hazards of business generally. Such asset protection, he says, is entirely legitimate if the purpose of the disposition is to remove family property from the dangers of business enterprise generally: see e.g. Williams v Lloyd (1934) 50 CLR 341, at 372. Conclusions

38 I am of the opinion that the Plaintiffs have failed to show a sufficient danger of dissipation of assets by the Defendants to warrant the continuation of the injunctions. My reasons are as follows. 39 First, the evidence of Mr McNabb as to the reason for the disposition of his interest in the family home to Mrs McNabb is not inherently implausible or improbable. The advice said to have been given by his solicitors in 1999 and again in 2002 that he should remove the family home from the hazards of business enterprise is advice commonly given by accountants and solicitors to people in Mr McNabb's position. 40 Second, if Mr McNabb had really intended to make his assets judgment-proof after the Plaintiffs' proceedings in the Local Court and the District Court had been commenced against him in June 2001 and February 2002, he would scarcely have purchased three real estate properties later in 2002 in his own name; he would have procured the purchases in the name of his wife or some other entity so as to avoid disclosure of his interests in the properties if the Plaintiffs should carry out searches in the Land Titles Office. The fact that Mr McNabb disposed of his interest only in the family home but acquired investment assets in his own name after the Plaintiffs' claims had been made against him suggests quite strongly that he did not intend to make himself judgment-proof and that in transferring his interest only in the family home he was following the advice which he says his solicitor had given him in 1999 and later in 2002. 41 Third, if Mr McNabb was intent on any dishonest design to make Universal judgment-proof, he would surely have procured Universal to make some questionable disposition of assets in or after November 2002, when he is said to have been acting dishonestly in respect of his interest in the family home. Yet no questionable transaction by Universal has been suggested. 42 Fourth, Mr McNabb has in fact paid the judgment entered against him in the Local Court proceedings. Mr Sullivan says that that circumstance should be disregarded because Mr McNabb dishonestly sought to delay or avoid payment of that judgment by lodging an appeal which was doomed to failure and which was withdrawn. However, many appeals which are doomed to failure are lodged: one cannot thereby attribute dishonesty to the appellant. 43 Fifth, Universal in fact paid, and paid promptly, the sum of $75,000 agreed as the compromise of the District Court proceedings. 44 All of these circumstances taken together do not satisfy me that Mr McNabb has, or had at any material time, a dishonest design to render himself or Universal judgment-proof if the claims of the Plaintiffs in these proceedings are successful. Accordingly, I am not persuaded that there is any warrant for the continuation of the injunctions against any of the Defendants and they are dissolved forthwith.

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